Post-Fire, SDG&E Seeks To Recover Higher Insurance Costs

By Published On: November 28, 2010

San Diego Gas & Electric is seeking to recover higher fire insurance premiums, but how much it recovers from ratepayers and by what means depends on which proposed ruling state regulators ultimately approve. One California Public Utilities Commission proposed decision released last week by administrative law judge Maribeth Bushey would deny $29 million in rate recovery in the 2009 General Rate Case. It would, though, open another door for partial recovery of the utility’s insurance rates--which includes a significantly higher deductible. (Deductibles, too, are subject to customer payment.) A vying alternate by commissioner Tim Simon released the same day would allow SDG&E to recover $29 million in rates after concluding SDG&E’s insurance premium rates after the 2007 wildfires were not within its control, nor part of the normal course of business. That satisfies the rate case mechanism’s requisite criteria, according to Simon. Recovery of insurance premium hikes post 2009-10, under Simon’s proposal, are to be recovered without formal hearings, via advice letter. Regulators conduct “general rate cases” every three years for the state’s utilities. The formal hearings delve into many line items in utility spending plans until the next rate case is vetted. In San Diego’s case, the general rate case included $4.5 million for liability insurance, but its actual costs were $47 million for 2009, Lee Schavrien, SDG&E senior regulatory and finance vice president, told the commission. The recovery vehicle SDG&E is attempting to tap into is what is known as the “Z factor.” Factor recovery criteria include costs incurred outside the normal costs of doing business and entailing factors beyond a utility’s control. In the 20 years the Z factor has been available in general rate cases, the CPUC has approved rate recovery only once. That was in a telecomm matter dealing with post-retirement benefits other than pensions. Ratepayer advocates protested SDG&E’s rate recovery request for the higher insurance premiums, noting the utility was found partly liable for the 2007 wildfires and could have better used its bargaining power with insurance firms. The Division of Ratepayer Advocates stated allowing recovery via the Z factor mechanism would amount to writing a “blank check” for future liability. Bushey’s ruling agreed with much of ratepayer advocates’ arguments, finding SDG&E had bargaining power with the insurance companies and its insurance rate increased partly because it was liable for the wildfires. But, the administrative judge would allow SDG&E to create a memorandum account via an advice letter filing to recover up to half of the increased premium annually. SDG&E now has coverage for wildfire liability with 27 different firms and another 28 for general liability--reflecting 10 more insurance providers. Its deductible rose from $1 million to $5 million. One of the fall 2007 blazes, dubbed the Witch Fire, burned almost 198,000 acres, killed two people, and injured 40 firefighters. It burned over 1,100 homes and 239 vehicles, according to the state. The Guejito Fire, which eventually merged with the massive Witch fire, damaged another 75 homes and 25 outbuildings. The 9,472 acre Rice Fire destroyed 206 homes and two commercial properties. Investigations into the fires ultimately blamed SDG&E wires for contributing to the blazes by violating transmission safety regulations.

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